A Win For Medicaid

Greg Anrig, vice president of policy at the Century Foundation, writes in with a very good point on the House health-care bill: It opens the door to eventually federalizing the Medicaid program, which would be a huge step forward:

One encouraging element of the health care reform bill released today by three House committees is that it would finance expanded eligibility for Medicaid entirely with federal money. Since its inception in 1965, Medicaid’s financing has been shared jointly between the feds and state governments. That arrangement has much to do with Medicaid’s huge shortcomings: wide state-to-state variations in eligibility rules and benefit levels, chronic under-funding, and limited medical options for beneficiaries. Because the program primarily covers adults and individuals with low incomes, along with nursing home residents, it has never benefited from broad political support.

The House bill would not require state contributions to pay for expanding Medicaid eligibility to 133 percent of the federal poverty level because, the committees correctly note, state budgets are already overwhelmed due to the recession. But a potential long-term payoff to this reform would be to open the door to federalizing the program entirely down the road. Federally run insurance programs like Social Security and Medicare are vastly more efficient and effective than federal-state counterparts like Medicaid and unemployment insurance. Economies of scale, uniform national rules, and the inability of 50 state governments to each do mischief to the programs have demonstrably led to far superior results for national social insurance.

If some new Medicaid beneficiaries have their benefits entirely paid for by the feds, it’s conceivable that other categories -- such as those eligible for both Medicare and Medicaid -- could be similarly shifted entirely to federal funding in later reforms. That would create opportunities for the federal government to exert greater control over the largely dysfunctional program, perhaps ultimately folding it into the proposed public health plan. In the process, step by step, the fragmentation that contributes so much to the flaws in our health care system would begin to wither away.

On a related note, a lot of people have been arguing for a third stimulus focused on state budgets and services. One way to do that would be to simply federalize Medicaid funding. It would be good long-term policy, good short-term politics, and a huge relief for state budgets.

The only thing I would say in opposition to this is that it would put Medicaid fully under Hyde Amendment dictates. Right now, in 17 states, the states use their contribution to Medicaid programs to cover reproductive health services. Federalizing Medicaid would eliminate that benefit in those 17 states, extending the discriminatory actions of the Hyde Amendment to more of the nation's poor women. In theory I absolutely agree with federalizing it, but there are consequences.

Why is federal management inherently more efficient and effective? The author seems to take it as an article of faith. What about local solutions that reflect local priorities? If Massachsuetts wants to spend more on Medicaid than Florida they are allowed to do so in the current structure. They are also allowed to cover different benefits. Since the populations of Medicaid and Medicare are so different what metrics are used to compare the two programs on effeciency??

I'm not sure i buy most of the economies of scale argument either. The biggest cost in Medicaid is obviously healthcare and Medicaid programs pay much less for the same services than Medicare does already (ask a doctor or hospital executive and they will tell you Medicaid is their biggest money loser). How would economies of scale help this? Further much of the overhead in Medicaid is incurred locally -- identifying and signing up members, maintaining local staff and offices. I don't see how this would benefit from being federalized either. The one benefit of economies of scale i can think of would be in paying providers.

My point is, I would like to see a more compelling argument for federalizing Medicaid than the one made above. Personally I think state level management allows for more experimentation, more innovation and more responsiveness to problems.